Behind the rise in portfolio company bankruptcies; PE's big infotech deals

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S&P Global Market Intelligence offers our top picks of global private equity news stories and more published throughout the week:

Fourteen US-based private equity portfolio companies filed for federal bankruptcy protection in January and February, the most in any two-month period since the summer of 2020. And the uptick may be rooted, at least partly, in the early days of the COVID-19 pandemic.

The troubled companies are concentrated in the consumer and healthcare sectors, which was identified at the end of 2022 as the highest-risk sectors.

Companies such as Serta Simmons Bedding LLC, owned since 2012 by private equity firm Advent International Corp., took on additional debt to manage the economic upheaval brought on by lockdowns and supply chain disruptions. In Serta's case, the raw materials used in mattress manufacturing were suddenly more expensive, and now inflation is impacting demand while some loans come due later in 2023.

Similar pressures have spread across US businesses and bankruptcy filings overall have soared in 2023.

For private equity portfolio companies and their owners, another factor is falling valuations, which create a target-rich environment. Fund managers are likely to view new investments as a better use of capital than distressed portfolio companies.

Read more on what lies behind the rise in portfolio company bankruptcies.

CHART OF THE WEEK: Private equity bets big on infotech in February

⮞ Overall North American information technology M&A fell more than 28% year over year in February to an aggregate deal value of $4.56 billion, but private equity was involved in two of the month's three biggest deals.

⮞ Topping the list was Francisco Partners Management LPs $1.74 billion bid to take cloud-based analytics company Sumo Logic Inc. private.

⮞ The sector's third-largest deal in February was PCP Managers LP's proposed $415 million buyout of Global Payments Gaming Services Inc.

TOP DEALS AND FUNDRAISING

– KKR & Co. Inc. agreed to sell its 50% stake in Spanish renewable energy project developer X-Elio Energy SL to its joint venture partner Brookfield Renewable Partners LP. KKR originally invested in X-Elio in 2015, and Brookfield bought a 50% stake in the company four years later.

– Cinven Ltd. agreed to buy MBCC Group's admixtures business from Sika AG in a deal expected to close during the first half of 2023.

– Arcline Investment Management LP raised $4.50 billion in capital commitments at the close of its Arcline Capital Partners III LP fund.

– JMI Equity secured $2.40 billion for its 11th growth equity fund, comprising JMI Equity Fund XI and JMI XI Executive Fund LP. The latest fundraising puts JMI's total capital commitments at more than $8 billion.

MIDDLE-MARKET HIGHLIGHTS

– An undisclosed buyer made an offer to acquire Franchise Group Inc. from Vintage Capital Management LLC and other shareholders for $1.10 billion.

– Middle-market healthcare investor Enhanced Healthcare Partners made a strategic growth investment in Janus Health Technologies Inc., which offers a revenue cycle platform for the healthcare sector.

– Lincoln Road Global Management LLC purchased commercial property landscaping contractor Zodega Landscape Services LLC.

– New Heritage Capital LLC sold its stake in medical device maker Rhythmlink International LLC to industrial technology investor Graham Partners Inc.

FOCUS ON: APPLICATION SOFTWARE

– Hewlett Packard Enterprise Co. will acquire OpsRamp Inc., a cloud infrastructure solutions provider, and expects to close the deal in the third quarter. The sellers include Morgan Stanley Private Equity, Sapphire Ventures LLC and Hewlett Packard Pathfinder, according to S&P Global Market Intelligence data.

– An investor group including Vertex Venture Holdings Ltd. and Lumis Consulting Partners India Pvt. Ltd. agreed to sell Indian analytics company Flutura Business Solutions Pvt. Ltd. to Accenture PLC.

– Francisco Partners-backed SmartBear Software Inc. bought Israeli software tracing platform Aspecto Inc. from technology accelerator and venture capital firm Upwest Labs LLC.

For further private equity deals, read our latest In Play report, which looks at potential private equity-backed M&A, including rumored transactions, each week.